oral argument not yet scheduled no. 15-1177 united …...of administrative law resemble ‘russian...

ORAL ARGUMENT NOT YET SCHEDULED

No. 15-1177

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

_________________________

PHH CORPORATION, PHH MORTGAGE CORPORATION, PHH HOME LOANS, LLC, ATRIUM INSURANCE CORPORATION, AND ATRIUM REINSURANCE CORPORATION,

Petitioners, v.

CONSUMER FINANCIAL PROTECTION BUREAU, Respondent.

_________________________________________________

On Petition For Review Of An Order Of The Consumer Financial Protection Bureau

_______________________________________________

REPLY BRIEF FOR PETITIONERS _________________________________________________

Mitchel H. Kider David M. Souders Sandra B. Vipond Michael S. Trabon WEINER BRODSKY KIDER PC 1300 19th Street, N.W., Fifth Floor Washington, D.C. 20036 (202) 628-2000

Thomas M. Hefferon William M. Jay GOODWIN PROCTER LLP 901 New York Avenue, N.W. Washington, D.C. 20001 (202) 346-4000

Theodore B. Olson Counsel of Record Helgi C. Walker Scott P. Martin GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 955-8500

Counsel for Petitioners

USCA Case #15-1177 Document #1588191 Filed: 12/11/2015 of 42

TABLE OF CONTENTS

Page

SUMMARY OF ARGUMENT ................................................................................. 1

ARGUMENT ............................................................................................................. 3

I. The Director’s Liability Determination Is Unlawful ............................ 3

A. The Director’s Decision Violates Fundamental Principles Of Fair Notice ............................................................................. 3

1. The Director’s New Interpretation Of Section 8(c)(2) Contradicts Nearly Two Decades Of Consistent Agency Guidance............................................ 4

2. The Director’s New Interpretation Of Section 8(a) Contradicts The Previously Settled Interpretation ........... 9

B. The Director’s New Interpretations Of RESPA Are Contrary To Law .......................................................................10

1. Section 8(c)(2) Plainly Defines Conduct That Section 8(a) Does Not Prohibit .......................................10

2. Any Section 8(a) Violation Plainly Occurs At Closing ............................................................................15

3. The Director’s Interpretation Should Not Be Accorded Deference .......................................................17

4. Administrative Enforcement Actions Are Subject To A Statute of Limitations ............................................20

C. The CFPB Violates The Constitutional Separation of Powers .......................................................................................22

II. The Order’s Sanctions Are Unlawful ..................................................24

A. The Injunctive Provisions Exceed The CFPB’s Statutory Authority And Are Otherwise Invalid ......................................25

B. The Disgorgement Order Exceeds The CFPB’s Statutory Authority And Is Otherwise Invalid .........................................28


TABLE OF CONTENTS (continued)

Page

ii

IV. The Decision And Order Should Be Vacated .....................................31

CONCLUSION ........................................................................................................31


iii

TABLE OF AUTHORITIES Page(s)

* Authorities upon which we chiefly rely are marked with an asterisk.

Cases Babbitt v. Sweet Home Chapter of Communities for a Great Oregon,

515 U.S. 687 (1995) ............................................................................................ 19 *Carter v. Welles-Bowen Realty, Inc.,

736 F.3d 722 (6th Cir. 2013) .............................................................................. 19 Christopher v. SmithKline Beecham Corp.,

132 S. Ct. 2156 (2012) ................................................................................ 7, 8, 10 City of Arlington v. FCC,

133 S. Ct. 1863 (2013) .................................................................................. 17, 18 Clark-Cowlitz Joint Operating Agency v. FERC,

826 F.2d 1074 (D.C. Cir. 1987) ............................................................................ 9 De Niz Robles v. Lynch,

803 F.3d 1165 (10th Cir. 2015) ............................................................................ 9 Fabi Const. Co. v. Sec’y of Labor,

508 F.3d 1077 (D.C. Cir. 2007) ............................................................................ 8 *FCC v. Fox Television Stations, Inc.,

132 S. Ct. 2307 (2012) .......................................................................................... 3 *Free Enterprise Fund v. PCAOB,

561 U.S. 477 (2010) ............................................................................................ 22 Freeman v. Quicken Loans, Inc.,

132 S. Ct. 2034 (2012) .................................................................................. 14, 18 Freytag v. Comm’r,

501 U.S. 868 (1991) ............................................................................................ 24 FTC v. Bronson Partners, LLC,

654 F.3d 359 (2d Cir. 2011) ......................................................................... 30, 31 *Gen. Elec. Co. v. EPA,

53 F.3d 1324 (D.C. Cir. 1995) ........................................................ 3, 5, 7, 8, 9, 31 *Glover v. Std. Fed. Bank,

283 F.3d 953 (8th Cir. 2002) .................................................................... 6, 12, 13


TABLE OF AUTHORITIES (continued)

Page(s)

iv

Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers, Local No. 70, 415 U.S. 423 (1974) ............................................................................................ 26

Hateley v. SEC, 8 F.3d 653 (9th Cir. 1993) .................................................................................. 30

Howland v. First Am. Title Ins. Co., 672 F.3d 525 (7th Cir. 2012) .......................................................................... 6, 14

Humphrey’s Ex’r v. United States, 295 U.S. 602 (1935) ............................................................................................ 23

INS v. St. Cyr, 533 U.S. 289 (2001) ............................................................................................ 19

Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (2011) ........................................................................................ 18

Leocal v. Ashcroft, 543 U.S. 1 (2004) ................................................................................................ 17

*Mullinax v. Radian Guar. Corp., 199 F. Supp. 2d 311 (M.D.N.C. 2002) ......................................................... 10, 16

Myers v. United States, 272 U.S. 52 (1926) .............................................................................................. 22

O’Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732 (5th Cir. 2003) ................................................................................ 6

Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199 (2015) ........................................................................................ 20

Satellite Broad. Co. v. FCC, 824 F.2d 1 (D.C. Cir. 1987) .................................................................................. 1

Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004 (9th Cir. 2002) ............................................................................ 12

SEC v. Banner Fund Int’l, 211 F.3d 602 (D.C. Cir. 2000) ............................................................................ 31

SEC v. First City Fin. Corp., 890 F.2d 1215 (D.C. Cir. 1989) .......................................................................... 30



Page(s)

v

SEC v. Whittemore, 659 F.3d 1 (D.C. Cir. 2011) ................................................................................ 31

*Snow v. First Am. Title Ins. Co., 332 F.3d 356 (5th Cir. 2003) ........................................................................ 10, 15

*Trinity Broad. of Fla., Inc. v. FCC, 211 F.3d 618 (D.C. Cir. 2000) .......................................................................... 4, 7

United States v. Apel, 134 S. Ct. 1144 (2014) ........................................................................................ 19

United States v. Chrysler Corp., 158 F.3d 1350 (D.C. Cir. 1998) ........................................................................ 7, 9

United States v. Gannon, 684 F.2d 433 (7th Cir. 1981) .............................................................................. 18

*United States v. McGoff, 831 F.2d 1071 (D.C. Cir. 1987) .............................................................. 16, 17, 18

United States v. Philip Morris USA Inc., 566 F.3d 1095 (D.C. Cir. 2009) .................................................................... 25, 26

United States v. Thompson/Ctr. Arms Co., 504 U.S. 510 (1992) ............................................................................................ 18

United States v. Wiltberger, 18 U.S. (5 Wheat.) 76 (1820) ............................................................................. 19

Verizon Tel. Cos. v. FCC, 269 F.3d 1098 (D.C. Cir. 2001) ............................................................................ 8

Statutes 12 U.S.C. § 2 ............................................................................................................ 24 12 U.S.C. § 2607(a) ..................................................................................... 12, 15, 26 12 U.S.C. § 2607(c) ..................................................................................... 11, 12, 13 12 U.S.C. § 2607(d) ..................................................................................... 21, 29, 30 12 U.S.C. § 2614 .......................................................................................... 16, 20, 21 12 U.S.C. § 2617 ........................................................................................................ 1



Page(s)

vi

12 U.S.C. § 4512(b)(2)............................................................................................. 24 12 U.S.C. § 5481(12) ............................................................................................... 23 12 U.S.C. § 5491(b)(1)............................................................................................. 23 12 U.S.C. § 5491(c) ........................................................................................... 23, 24 12 U.S.C. § 5563 ...................................................................................................... 20 12 U.S.C. § 5563(b) ....................................................................................... 3, 25, 27 12 U.S.C. § 5565(a) ........................................................................................... 25, 29

Other Authorities James H. Pannabecker & David Stemler, The RESPA Manual: A

Complete Guide to the Real Estate Settlement Procedures Act (2013) .................................................................................................................... 6

1 Laurence H. Tribe, American Constitutional Law 703 (3d ed. 2000) .................. 22 Office of Thrift Supervision, Proposed Mortgage Guaranty

Reinsurance Activities Through Reciprocal Insurer, 1999 WL 413838 (Mar. 11, 1999) ........................................................................................ 6

Rachel E. Barkow, Insulating Agencies: Avoiding Capture Through Institutional Design, 89 Tex. L. Rev. 15 (2010) ................................................. 24

S. Rep. No. 93-866 (1974), reprinted in 1974 U.S.C.C.A.N. 6546 ........................ 14

Rules Fed. R. Civ. P. 65(d)(1) ............................................................................................ 26

Regulations 12 C.F.R. § 1024.14(b) .............................................................................................. 5 12 C.F.R. § 1024.14(g)(1)(iv) .................................................................................... 5 12 C.F.R. § 1024.14(g)(2) .......................................................................................... 5


vii

GLOSSARY

ALJ Administrative Law Judge

Atrium Petitioners Atrium Insurance Corporation and Atrium Reinsurance Corporation

CFPA Consumer Financial Protection Act

CFPB Consumer Financial Protection Bureau

Confirmation Letter

Letter from J. Kennedy, Assoc. Gen. Counsel for Fin. & Regulatory Compliance, HUD, to J. Maher, Am. Land Title Ass’n (Aug. 12, 2004) (JA259)

Dec. In the Matter of PHH Corporation, Decision of the Director, Docket No. 2014-CFPB-0002, Dkt. 226 (June 4, 2015) (JA1-38)

HUD United States Department of Housing and Urban De-velopment

HUD Letter Letter from N. Retsinas, Ass’t Sec’y for Hous.-Fed. Hous. Comm’r, HUD, to S. Samuels, Countrywide Funding Corp. (Aug. 6. 1997) (JA251-58)

Order In the Matter of PHH Corporation, Final Order, Docket No. 2014-CFPB-0002, Dkt. 227 (June 4, 2015) (JA39-40)

PHH Petitioners PHH Corporation, PHH Mortgage Corpo-ration, and PHH Home Loans, LLC

RESPA Real Estate Settlement Procedures Act of 1974


SUMMARY OF ARGUMENT

The CFPB’s response is long on allegation and short on law. In its repeated

descriptions of Petitioners as engaged in “kickbacks,” the agency simply assumes

the Director’s astonishing conclusion that Section 8(c)(2) is “irrelevant.” Opp. 12.

As both the statute and prior agency interpretations have long made clear, howev-

er, payments for services such as mortgage reinsurance that are actually performed

and reasonably priced are lawful.

The Director’s attempt to impose liability on Petitioners for past conduct

based on a new, diametrically opposite construction of Section 8 faces a glaring

and fatal problem: fair notice. The Director may try to shrug off the previous

agency interpretations, but HUD, other agencies, courts, commentators, and even

the ALJ and Enforcement Counsel in this proceeding all viewed them as binding.

The CFPB’s claim that “[n]o official agency pronouncement misled PHH”

(Opp. 46) boils down to the extraordinary assertion that the prior interpretations

were just “unofficial” enough to fool not only Petitioners but the entire industry,

including the numerous amici. This bait-and-switch cannot stand, lest “the practice

of administrative law … resemble ‘Russian Roulette.’” Satellite Broad. Co. v.

FCC, 824 F.2d 1, 4 (D.C. Cir. 1987).

The existence of a statutory safe harbor for certain agency action, 12 U.S.C.

§ 2617, does not empower the CFPB to discard well-settled interpretations at will


2

or to apply newly-minted ones retroactively. Even outside the safe harbor, due

process bars an agency from punishing activity undertaken in reliance on its own

official interpretation. Here, that interpretation was announced not just in the HUD

Letter1—which, even if not published in the Federal Register, was certainly “offi-

cial”—but in multiple HUD documents that were so published. And the HUD Let-

ter’s two-prong inquiry is embedded in Regulation X itself.

The Director’s novel constructions of RESPA are unlawful in any event.

They read Section 8(c)(2) out of existence, create staggering liability under Section

8(a), and untether administrative enforcement from any time limitations. That out-

come cannot be squared with the statutory text or Congress’s obvious intent to al-

low compensation for legitimate services. Because Section 8 is a criminal prohibi-

tion, as the CFPB admits, the rule of lenity resolves any possible ambiguity—

without resort to deference. Contrary to the agency’s claim, deference is not a

canon of statutory construction that applies at Chevron’s first step: It is a standard

of review that governs the second step.

The Director’s high-handed approach derives from his unprecedented lack of

accountability to the political branches. The CFPB’s defense of its anomalous

structure ignores the Supreme Court’s most recent teachings about separation of

1 Defined terms have the same meaning as in the Opening Brief.


3

powers, including the presumptive unconstitutionality of restrictions on the Presi-

dent’s removal powers.

The CFPB also fails to rehabilitate the Order’s injunctive provisions, which

it concedes stretch far beyond the scope of mortgage reinsurance and, indeed,

RESPA itself, despite the strict limitation of the agency’s cease-and-desist powers

to conduct “specified in the notice of charges.” 12 U.S.C. § 5563(b)(1)(D). Final-

ly, the CFPB does not identify any statutory authority to order disgorgement or, in

any event, adduce a proper basis for the amount of the award.

ARGUMENT

I. The Director’s Liability Determination Is Unlawful.

A. The Director’s Decision Violates Fundamental Principles Of Fair Notice.

Due process requires “fair notice of conduct that is forbidden.” FCC v. Fox

Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012); see also Gen. Elec. Co. v.

EPA, 53 F.3d 1324, 1329 (D.C. Cir. 1995) (“This requirement has now been thor-

oughly ‘incorporated into administrative law.’”) (citation omitted). The CFPB at-

tempts to wish away this constitutional imperative, burying the issue at the back of

its brief and arguing that Petitioners “cannot claim a right to fair notice broader

than that already provided by Congress.” Opp. 42.

But due process is not a matter of legislative grace, and the fact that Peti-

tioners do not seek to avail themselves of RESPA’s limited safe harbor is therefore


4

beside the point. The relevant issue is whether Petitioners had adequate notice that

their conduct, at the time it was undertaken, was unlawful. They did not.

1. The Director’s New Interpretation Of Section 8(c)(2) Contradicts Nearly Two Decades Of Consistent Agency Guidance.

Fair notice depends on whether, “‘by reviewing the regulations and other

public statements issued by the agency, a regulated party acting in good faith

would be able to identify, with ascertainable certainty, the standards with which

the agency expects parties to conform.’” Trinity Broad. of Fla., Inc. v. FCC, 211

F.3d 618, 628 (D.C. Cir. 2000) (citation omitted). Since the 1990s, HUD consist-

ently and repeatedly interpreted Section 8 to permit (1) reasonable compensation

(2) for services actually performed, even if referrals were somehow involved. The

CFPB then bound itself to HUD’s “official commentary, guidance, and policy

statements.” Br. Add. 40.

Nonetheless, the Director abruptly “reject[ed]” (Dec. 17) (JA17) that two-

part test and retroactively sanctioned Petitioners for affiliated mortgage reinsurance

arrangements that HUD expressly blessed. The CFPB’s efforts to justify that fun-

damentally unfair action fall flat.

a. The CFPB contends that the HUD Letter “hardly represented well-

established practice.” Opp. 44. But all the “regulations and other public state-

ments issued by the agency” told Petitioners that what they did was not forbidden.


5

Gen. Elec., 53 F.3d at 1329. Regulation X provides that “[a]ny referral of a set-

tlement service is not a compensable service, except as set forth in

§ 1024.14(g)(1),” 12 C.F.R. § 1024.14(b), which explains, in keeping with Section

8(c)(2), that bona fide compensation for services actually performed is “per-

mit[ted],” id. § 1024.14(g)(1)(iv). Regulation X further explains that, “[i]f the

payment of a thing of value bears no reasonable relationship to the market value of

the goods or services provided, then the excess is not for services or goods actually

performed or provided.” Id. § 1024.14(g)(2).

The CFPB strains to avoid the obvious import of this language, Opp. 31

n.23, but the word “excess” makes no sense unless there is a “reasonable” value

that can be exceeded. Thus, according to the CFPB’s own regulations, settlement

services provided upon referral are “compensable,” i.e., lawful, provided that the

compensation takes the form of (1) reasonable payments (2) for services actually

performed.

Moreover, the CFPB ignores voluminous evidence that HUD’s two-part test

was widely accepted and relied upon, including by:

• Numerous sectors of the real-estate services industry. See, e.g., AFSA

Br. 18-22; NAR Br. 1-25; ALTA Br. 1, 5-6.


6

• A leading RESPA treatise. See James H. Pannabecker & David Stem-

ler, The RESPA Manual: A Complete Guide to the Real Estate Settle-

ment Procedures Act § 8.04[6][a] (2013).

• Federal courts. See, e.g., Howland v. First Am. Title Ins. Co., 672

F.3d 525, 531 (7th Cir. 2012); O’Sullivan v. Countrywide Home

Loans, Inc., 319 F.3d 732, 739-41 (5th Cir. 2003); Glover v. Standard

Fed. Bank, 283 F.3d 953, 963 (8th Cir. 2002); see also Br. 27 (collect-

ing cases).

• HUD itself. See Br. Add. 28-39; Confirmation Letter (JA259).

• Other federal agencies. See Office of Thrift Supervision, Proposed

Mortgage Guaranty Reinsurance Activities Through Reciprocal Insur-

er, 1999 WL 413838, at *2 n.20 (Mar. 11, 1999).

• The ALJ and Enforcement Counsel. See Dkt. 205, at 41 (JA147);

Dkt. 1, ¶ 96 (JA57); see Dkt. 55, at 34 (JA79).

The CFPB therefore cannot be taken seriously when it belittles Petitioners’

longstanding reliance as being based merely on unpublished government docu-

ments. The HUD Letter specifically addressed the legality of affiliated mortgage

reinsurance. Enshrined in the Federal Register or not, it certainly constituted the

government’s official position on that question: It was issued by the Senate-

confirmed Federal Housing Commissioner exercising the Secretary’s delegated au-


7

thority. Br. 7. Agency pronouncements far less formal than this can deprive regu-

lated parties of fair notice. See, e.g., Gen. Elec., 53 F.3d at 1332 (informal letter

from “one EPA regional office”); United States v. Chrysler Corp., 158 F.3d 1350,

1356 (D.C. Cir. 1998) (NHTSA’s internal test schematic). Indeed, agency silence

can give rise to a lack of fair notice. See Christopher v. SmithKline Beecham

Corp., 132 S. Ct. 2156, 2168 (2012).

Yet even if the relevant inquiry were limited to agency statements “pub-

lished in the Federal Register,” Opp. 41, HUD repeatedly published not just Regu-

lation X itself, but numerous applications of Regulation X to other real-estate set-

tlement services, articulating the same two-part test. For example, in the directly

analogous context of title insurance, HUD recognized that Section 8(c)(2) permits

payments “reasonably related to services actually performed.” Br. Add. 31 (em-

phasis added); see also Br. 8-9 & n.2 (collecting policy statements).

The CFPB maintains that “[t]hose statements address fact situations that

bear no similarity to” affiliated mortgage reinsurance. Opp. 42. But they all deal

with goods or services subject to Section 8. Regulated parties may reasonably rely

on an agency’s consistent interpretation of a statute, even if the agency has not yet

applied that interpretation to particular facts. See Trinity, 211 F.3d at 629. Here,

Petitioners did not need to “assume[], quite reasonably” that HUD’s two-part test


8

“applied equally” to affiliated-reinsurance arrangements, ibid., because HUD ex-

plicitly said that it did, see HUD Letter at 6-7 (JA256-57).

In short, at the time Petitioners entered into the arrangements at issue (and

even while receiving premiums), all of “the regulations and other public state-

ments,” Gen. Elec., 53 F.3d at 1329, said the same thing: Payments for services do

not violate Section 8(a) if the services are actually performed and the payments are

reasonable. The CFPB identifies no agency pronouncement that would have

warned a party, “with ‘ascertainable certainty,’” that such arrangements were ille-

gal. Ibid. (citation omitted).

b. The CFPB nonetheless insists that Petitioners have no right to fair no-

tice because “an agency may interpret ambiguous statutory provisions in adjudica-

tive proceedings and may apply those interpretations retrospectively.” Opp. 42 (ci-

tation and footnote omitted). There are critical limits to that proposition. An

agency may “not change an interpretation in an adjudicative proceeding where do-

ing so would impose ‘new liability … on individuals for past actions which were

taken in good-faith reliance on agency pronouncements.’” Christopher, 132 S. Ct.

at 2167 (citation and alterations omitted) (emphasis added); see Fabi Constr. Co. v.

Sec’y of Labor, 508 F.3d 1077, 1088 (D.C. Cir. 2007).

The CFPB’s own cases reinforce the point. Where, as here, “there is a sub-

stitution of new law for old law that was reasonably clear,” Verizon Tel. Cos. v.


9

FCC, 269 F.3d 1098, 1109 (D.C. Cir. 2001) (internal quotation omitted), an agency

cannot impose “‘new liability’” for “‘past actions which were taken in good-faith

reliance on agency pronouncements,’” Clark-Cowlitz Joint Operating Agency v.

FERC, 826 F.2d 1074, 1084-85 (D.C. Cir. 1987) (en banc) (citation and alterations

omitted).

The CFPB further maintains that the requirement of fair notice applies only

to punitive sanctions. Opp. 45 n.36. But the sanctions here—disgorgement of

gross receipts—are punitive. See Br. 59-60. Regardless, the “duty to provide no-

tice is triggered” whenever a “sufficiently grave sanction” “deprives [a regulated

party] of property.” Chrysler, 158 F.3d at 1355. Absent fair notice, “an agency

may not deprive a party of property by imposing civil or criminal liability.” Gen.

Elec., 53 F.3d at 1328-29 (emphasis added). No one denies that the Director pur-

ported to deprive Petitioners of $109 million or that he imposed—in his words—

“liability” and “sanctions” on them. Dec. 31 (JA31) (capitalization omitted).

2. The Director’s New Interpretation Of Section 8(a) Contradicts The Previously Settled Interpretation.

The CFPB does not advance any argument that Petitioners had fair warning

that the Director would reject more than a decade of judicial precedent holding that

a Section 8(a) violation occurs, if at all, when a loan closes. Regulated entities

may reasonably rely on settled judicial statutory constructions even when an agen-

cy has not expressly agreed with those decisions. De Niz Robles v. Lynch, 803


10

F.3d 1165, 1177-79 (10th Cir. 2015); cf. Christopher, 132 S. Ct. at 2167-68. That

is precisely what Petitioners (and numerous other parties) did.

The CFPB concedes that the Director’s interpretation is irreconcilable with

Mullinax v. Radian Guaranty Corp., 199 F. Supp. 2d 311, 325 (M.D.N.C. 2002),

and essentially admits the same regarding Snow v. First American Title Insurance

Co., 332 F.3d 356 (5th Cir. 2003). Opp. 23-24. Nor were those the only cases

holding that a Section 8 violation occurs at settlement, i.e. the closing: As the ALJ

recognized, “the Snow doctrine is authoritative.” Dkt. 152, at 11-12 (JA91-92)

(collecting cases).

The Director’s new theory of Section 8(a)—that one improper referral can

subsequently generate hundreds of separate violations—allowed him to reach back

in time to loans that closed years ago, even before July 21, 2008. This had the un-

deniably colossal effect, cf. Opp. 25 n.12, of increasing Petitioners’ liability by

more than $100 million. Due process precludes that result.

B. The Director’s New Interpretations Of RESPA Are Contrary To Law.

The Director’s new interpretations of RESPA are, in any event, unlawful.

1. Section 8(c)(2) Plainly Defines Conduct That Section 8(a) Does Not Prohibit.

As the plain language of Section 8(c)(2) shows, Congress obviously intend-

ed to carve out certain referrals from liability under Section 8. The CFPB doubles


11

down on the Director’s astonishing conclusion that this key piece of the statutory

scheme is “irrelevant” when a referral agreement exists. Opp. 12, 29. That ap-

proach would reduce Section 8(c)(2) to a mere triviality and, in turn, vastly expand

the scope of conduct prohibited under RESPA.

a. The CFPB contends that Section 8(c)(2) is simply an “interpretive

tool,” suggesting that the word “construed” tells courts not to infer a secret referral

agreement when one settlement-service provider sells another provider actual ser-

vices at a reasonable price. Opp. 28-29. But the statute says nothing about infer-

ences, agreements, rules of evidence, or conditional referrals. Rather, it uses broad

and unqualified language—“[n]othing in this section shall be construed as prohibit-

ing”—to define permissible conduct. Whether Section 8(c)(2) is called a safe har-

bor, exemption, or even “interpretive tool,” the point is that, if a payment satisfies

Section 8(c)(2), it is categorically lawful.

The CFPB cannot “construe[]” Section 8(a) to prohibit payments that Sec-

tion 8(c)(2) unambiguously allows. Indeed, Section 8(c)’s list of exceptions makes

no sense unless it allows payments that Section 8(a) would otherwise prohibit.

Section 8(c)(3), for example, exempts “payments pursuant to … referral arrange-

ments between real estate agents and brokers.” 12 U.S.C. § 2607(c)(3).

The CFPB fatally undermines its own theory when it admits that “RESPA

contains some exemptions,” including Section 8(c)(1)(B). Opp. 15. It then asserts


12

that “section 8(c)(2) is not among them,” ibid., but that is textually impossible.

The exemptive language “[n]othing … shall be construed as prohibiting” appears

in the common verbiage of Section 8(c); it cannot mean one thing in Section

8(c)(2) and another thing in the other subsections. The Director cannot interpret

Section 8(c) in a way that gives a single phrase different meanings in the course of

a single sentence.

Nor can he toss Section 8(c) into the dustbin of history by deeming it “irrel-

evant” whenever a referral agreement exists. Section 8(a) applies only if there is

an actual “agreement or understanding.” 12 U.S.C. § 2607(a). This Court should

decline the invitation to turn Section 8’s “interrelated sections upside down” by

“putting total emphasis on the prohibitory language of Section 8(a) and no empha-

sis on the permissive language of Section 8(c).” Glover, 283 F.3d at 964.

b. The CFPB also contends that the phrase “bona fide” in Section 8(c)(2)

requires a court to determine the subjective motives underlying a settlement-

service provider’s purchase of goods or services. Opp. 29. Even assuming that

“bona fide” modifies “other payment,” 12 U.S.C. § 2607(c)(2), rather than just

“salary or compensation,” that means that the payment must be “bona fide,” not the

buyer’s motives. And a payment is “bona fide” if it bears a reasonable relation to

the value of the services actually provided in return: Otherwise, the payment

might actually be compensation for a referral. See Schuetz v. Banc One Mortg.


13

Corp., 292 F.3d 1004, 1013 (9th Cir. 2002). But the provider’s subjective motives

are irrelevant to the question whether the payment is legitimate.

Nor would it make sense for the legitimacy of a payment to turn on such mo-

tives. People purchase goods and services for many reasons. See ALTA Br. 7-8 &

n.10. A transaction’s legality should not depend on which reason a judge, a jury,

or the Director thinks was most important. Yet under the Director’s version of

Section 8, “inventive minds making clever arguments can turn virtually any pay-

ment … into a purported payment for the unlawful referral of business.” Glover,

283 F.3d at 964. Section 8(c)(2) forecloses those arguments because it “clearly

states that reasonable payments for goods, facilities or services actually furnished

are not prohibited by RESPA, even when done in connection with [a] referral.”

Ibid.

c. The CFPB contends that Petitioners’ reading of Section 8(c)(2) makes

Section 8(c)(1) superfluous. Opp. 28. Section 8(c)(1) states that “the payment of a

fee” to attorneys, title insurers, or loan agents for performing particular services is

not prohibited. 12 U.S.C. § 2607(c)(1). Section 8(c)(2), meanwhile, applies to an-

yone who performs any kind of service (or furnishes goods or facilities). Id.

§ 2607(c)(2). And, unlike Section 8(c)(2), Section 8(c)(1) does not contain the

phrase “bona fide.” Id. § 2607(c)(1). Section 8(c)(2) is thus “at once broader” be-

cause it applies to all services “and narrower” because it contains an additional


14

substantive requirement, Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034, 2043

(2012), as HUD recognized, Br. Add. 31. To be sure, some services—say, legal

services actually provided at a market price—will qualify for both exemptions.

See Howland, 672 F.3d at 533. But each clause has independent meaning. See

ibid. That some conduct is legal for two reasons rather than one does not make

Section 8(c)(1) superfluous.

Nor does interpreting Section 8(c)(2) to mean what it says undermine RES-

PA. Opp. 28. Congress wrote an exception into the statute precisely because

“[r]easonable payments in return for services actually performed or goods actually

furnished are not intended to be prohibited.” S. Rep. No. 93-866 (1974), reprinted

in 1974 U.S.C.C.A.N. 6546, 6551.2 In any event, “[v]ague notions of statutory

purpose provide no warrant for expanding” RESPA “beyond the field to which it is

unambiguously limited.” Freeman, 132 S. Ct. at 2044.

d. Finally, the CFPB is wrong to contend—repeatedly—that Petitioners

have admitted accepting kickbacks. E.g., Opp. 19, 20. Petitioners have done no

2 The CFPB (Opp. 19 n.6) and its amicus (AARP Br. 11) cast this as a matter

of consumer protection, claiming that borrowers paid $109 million more in mort-gage insurance due to the reinsurance at issue. But as the ALJ found and the Di-rector confirmed, “there is generally little variation among rates charged by differ-ent mortgage insurers” because they “must file their rates with state insurance reg-ulators.” Dec. 3 (JA3). Thus, it is unsurprising that the Bureau never proved, and the Director never found, that a single consumer paid more because their loan was reinsured.


15

such thing. See, e.g., Br. 40-41; Dec. 12 (JA12). Section 8(c)(2) defines what is

not a kickback, and the agency simply assumes its own (erroneous) conclusion.

2. Any Section 8(a) Violation Plainly Occurs At Closing.

The Director’s decision to treat each mortgage-reinsurance payment as a

separate violation is likewise unambiguously foreclosed by RESPA’s text. As not-

ed above, supra at 9-10, federal courts have uniformly held that a Section 8 viola-

tion occurs at closing. The CFPB’s principal argument is that those cases are

wrong because Section 8(a) says that a violation occurs when a settlement-service

provider “accept[s]” an illegal payment. Opp. 24. That theory of Section 8(a) may

be correct, as far as it goes, but it begs the key questions of what the alleged “thing

of value” is and when it was received.

Here, according to the CFPB, the relevant consideration was the mortgage

insurers’ monthly payments for reinsurance. But Petitioners reinsured each mort-

gage-insurance policy on the day each loan closed, at which time the allegedly im-

proper referral had already occurred. Thus, Petitioners acquired the right to

monthly payments—the “thing of value pursuant to” an allegedly improper referral

“agreement”—at closing. 12 U.S.C. § 2607(a); see Snow, 332 F.3d at 359. This

reading makes practical sense because each referral corresponds to one allegedly

improper “thing of value.” In contrast, under the Director’s interpretation, each re-

ferral could correspond to hundreds of “kickbacks,” sometimes over a period of


16

decades. But see Mullinax, 199 F. Supp. 2d at 325 (“Congress knew how to speci-

fy when a plaintiff’s right to bring an action would be linked to a monthly pay-

ment.”). The CFPB responds that, because particular borrowers might later fail to

pay their bills, Petitioners received nothing at closing. Opp. 24. But a right to a

future stream of payments is not worthless just because the stream might dry up.

Indeed, Enforcement Counsel below maintained that the “kickback” here

was the mortgage insurers’ agreement to buy reinsurance from Petitioners—i.e.,

Petitioners’ right to a stream of future profits contingent on monthly mortgage-

insurance payments. See Dec. 15 (JA15). Thus, the CFPB’s contention that Peti-

tioners have forfeited this argument, Opp. 22 n.7, is passing strange. The CFPB

has maintained all along that Petitioners violated RESPA by selling reinsurance,

and Petitioners have maintained all along that the violations occurred, if at all, at

closing. See, e.g., Dkt. 18, at 29-30 (JA63-64); Dkt. 217, at 6-7 (JA247-48).

The Director’s interpretation also has profoundly problematic effects on

RESPA’s one-year limitations period for private suits. 12 U.S.C. § 2614. The

CFPB insists that RESPA’s limitations period has nothing to do with when a viola-

tion occurs. Opp. 24. But when a court is faced with two interpretations of a stat-

ute, one of which would dramatically extend the limitations period, the court

should choose the other. United States v. McGoff, 831 F.2d 1071, 1094 (D.C. Cir.


17

1987). Here, the Director’s reading of Section 8(a) would allow plaintiffs to sit on

their rights for years—even decades—after an allegedly illegal referral.

The CFPB blithely answers that settlement-service providers have nothing to

fear so long as they obey the law (an argument that conflicts with Congress’s

choice to provide a statute of limitations at all). Opp. 24 n.11. That is ironic, to

say the least, as Petitioners in this very case reasonably believed their mortgage-

reinsurance arrangements were in full compliance with RESPA, until the Director

decided to change the law.

3. The Director’s Interpretation Should Not Be Accorded Deference.

a. Even if the text of Section 8 did not make its meaning clear, the rule

of lenity resolves any doubt in Petitioners’ favor. Leocal v. Ashcroft, 543 U.S. 1,

12 n.8 (2004). The CFPB argues that Chevron trumps the rule of lenity. But be-

cause “the law of crimes must be clear,” the interpretation of statutes that involve

criminal liability is “far outside Chevron territory.” McGoff, 831 F.2d at 1077.

That is so for at least two reasons.

First, courts apply all of “the ordinary tools of statutory construction” before

considering the reasonableness of an agency’s interpretation under Chevron. City

of Arlington v. FCC, 133 S. Ct. 1863, 1868 (2013). The CFPB argues that defer-

ence is itself a “tool[] of statutory construction.” Opp. 34. But deference is a

standard of review that applies only at step two, not a means of interpretation at


18

step one; otherwise, every Chevron case would end at step one. By contrast, the

rule of lenity “is a rule of statutory construction,” United States v. Thompson/Ctr.

Arms Co., 504 U.S. 505, 518 n.10 (1992) (plurality opinion), that does apply at

step one. The analysis in this case thus should never proceed to the question

whether the Director’s interpretation was reasonable. See McGoff, 831 F.2d at

1084 & n.22.

Second, in the interpretation of a criminal statute, Chevron’s rationale crum-

bles. Chevron is based on a theory of implicit delegation—namely, that Congress

sometimes intends to give agencies flexibility to fill in the gaps of ambiguous stat-

utes. City of Arlington, 133 S. Ct. at 1868. But only Congress may create federal

crimes. Br. 41. The CFPB suggests that the criminal penalties for violating RES-

PA are of little import because criminal prosecutions under RESPA are rare. Opp.

34 n.26. Even if that were true, but see, e.g., United States v. Gannon, 684 F.2d

433, 437 & n.2 (7th Cir. 1981) (en banc), “‘prosecutorial discretion’” is no reason

to take RESPA’s criminal provisions less seriously, Freeman, 132 S. Ct. at 2041

(citation omitted).

None of the cases discussed by the CFPB requires deference here. Opp. 34-

35. In Kasten v. Saint-Gobain Performance Plastics Corp., the Supreme Court

simply noted that the agency’s opinion “add[ed] force to” the Court’s independent

conclusion that a statute was unambiguous. 131 S. Ct. 1325, 1335-36 (2011). And


19

although INS v. St. Cyr does not use the word “lenity,” the Court based its ruling in

part on the “‘longstanding principle’” of interpreting ambiguous immigration stat-

utes in the alien’s favor. 533 U.S. 289, 321 (2001) (citation omitted).

The CFPB also relies on a footnote in Babbitt v. Sweet Home Chapter of

Communities for a Great Oregon, but there the Supreme Court simply observed

that the rule of lenity might not apply to “facial challenges to administrative regu-

lations.” 515 U.S. 687, 704 n.18 (1995). The Court added that, “[e]ven if” the rule

of lenity applied, it did not require invalidating the regulation at issue. Ibid.; see

Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 734-35 (6th Cir. 2013) (Sutton,

J., concurring). Later, the Court made clear that it has “never held that the Gov-

ernment’s reading of a criminal statute is entitled to any deference.” United States

v. Apel, 134 S. Ct. 1144, 1151 (2014).

Finally, the CFPB contends that RESPA itself tells courts not to apply lenity.

Opp. 36. According to the agency, because Congress gave it the authority to inter-

pret RESPA and provided a statutory safe harbor, Congress implicitly sought to

foreclose the rule of lenity and allow the Director to make criminal law. Nothing

in RESPA says that, and Congress would not silently overturn a doctrine that is

“perhaps not much less old than construction itself.” United States v. Wiltberger,

18 U.S. (5 Wheat.) 76, 95 (1820).


20

b. Even if this Court concludes that it could theoretically be appropriate

to defer, no such deference is warranted because the Decision is arbitrary and ca-

pricious. The CFPB does not bother refuting this argument, nor could it, consider-

ing that the Director never offered a “substantial justification” for reversing the

long-standing interpretation of Section 8 in light of the “‘serious reliance inter-

ests’” at issue. Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1209 (2015) (cita-

tion omitted). Petitioners and their many amici have vividly illustrated the magni-

tude of those interests.

4. Administrative Enforcement Actions Are Subject To A Statute of Limitations.

The CFPB reiterates the Director’s remarkable position that “no statute of

limitations applies.” Opp. 38. According to the CFPB, it pursued this enforcement

action under 12 U.S.C. § 5563, which purportedly has no statute of limitations, ra-

ther than under Section 16 of RESPA, 12 U.S.C. § 2614, which contains a three-

year limitations period. Opp. 38. This misstates the source of the CFPB’s authori-

ty.

The Director acknowledged that it would be “inappropriate[ly] retroactive”

for the Bureau “to seek civil money penalties for violations that occurred before

the Bureau was created” because “RESPA did not authorize HUD to seek a civil

money penalty.” Dec. 12 (JA12). That is, the remedies available to the CFPB un-

der RESPA for conduct before July 21, 2011 depend on what remedies were avail-


21

able to HUD. Although the Director erred in concluding that disgorgement was

one of those remedies, see infra at 29-30, the fact remains that the authority for

HUD’s remedies was Section 8(d), 12 U.S.C. § 2607(d)(4) (2006), which author-

ized “an action to enjoin violations.” Those remedies, in turn, were governed by

the three-year statute of limitations applicable to such “actions” in Section 16. Id.

§ 2614. Although the CFPB now argues that Sections 8 and 16 do not authorize

enforcement actions, it cannot simultaneously advance that argument while pursu-

ing sanctions against Petitioners that could be authorized only by Section 8, subject

to Section 16’s limitations period.

To be sure, Section 16 refers to “[a]ny action … brought in the United States

district court or in any other court of competent jurisdiction.” 12 U.S.C. § 2614.

But the clause governing “actions brought by the Bureau” does not contain any

similar limitations. Ibid. And “action” (or “actions”) in Sections 8 and 16 cannot

be read as limited to “court actions,” Opp. 39, or else the CFPB would lack the on-

ly source of authority that it could conceivably have for adjudicating violations that

occurred before its creation.

Nor is there any comfort in the assurance that “a court would look askance”

at any administrative proceeding brought “100 years from now” to “challenge con-

duct occurring presently.” Opp. 38 n.28. The CFPB states in the same breath that


22

“the United States is not bound ‘by any laches of its officers, however gross.’”

Ibid. (citation and alteration omitted).

C. The CFPB Violates The Constitutional Separation of Powers.

The CFPB is the first and only federal agency to amass such broad and un-

checked power in the hands of a single person. Br. 45-51. The CFPB attempts to

defend its constitutionality without even discussing the Supreme Court’s most re-

cent instructions on separation-of-powers questions, Free Enterprise Fund v.

PCAOB, 561 U.S. 477 (2010), instead trying to distinguish the case on its facts.

Opp. 55-57.

Before Free Enterprise Fund, the Supreme Court’s removal-power jurispru-

dence was a “conundrum,” 1 Laurence H. Tribe, American Constitutional Law 703

(3d ed. 2000), with the leading cases using different tests. Free Enterprise Fund

clarified the doctrine: “Since 1789, the Constitution has been understood to em-

power the President to keep [executive] officers accountable—by removing them

from office, if necessary.” 561 U.S. at 483 (citing Myers v. United States, 272 U.S.

52 (1926)).

Thus, the baseline rule is that statutes that interfere with the President’s abil-

ity to remove officers are presumptively unconstitutional. Where, as here, a court

“consider[s] a new situation not yet encountered,” the court must determine if spe-


23

cial “circumstances” justify “restrict[ing the President] in his ability to remove” an

officer. Id. at 483-84. The CFPB has not even tried to meet this test.

Instead, the CFPB attempts to shrink its several structural problems down to

two: the limitation on the President’s removal power and the agency’s independent

funding. Opp. 55. This ignores several other anomalous features of the CFPB.

The CFPB is headed, not by a multimember commission, but by a single, unac-

countable Director. 12 U.S.C. § 5491(b)(1). The Director wields an unprecedent-

ed amount of unchecked authority to enforce eighteen consumer-financial statutes

previously administered by other agencies. Id. § 5481(12). And he serves a

lengthy term of at least five years, which can be extended indefinitely. Id.

§ 5491(c)(1)-(2). The CFPB argues the Director’s functions are materially identi-

cal to those in Humphrey’s Executor v. United States, 295 U.S. 602 (1935), Opp.

56-57, but no FTC Commissioner, standing alone, has any power whatsoever.

Moreover, the FTC “is to be non-partisan,” 295 U.S. at 624, while the Director has

no such constraints, and, unlike the FTC, possesses independent budgetary authori-

ty.

The CFPB also argues that the limitations on the President’s removal author-

ity and Congress’s appropriations authority do not impact the same constitutional

power. Opp. 59-60. But agencies depend on the President’s help to obtain funding

from Congress; thus, the Director’s ability to fund himself diminishes the Presi-


24

dent’s leverage too. Rachel E. Barkow, Insulating Agencies: Avoiding Capture

Through Institutional Design, 89 Tex. L. Rev. 15, 42-43 (2010). In any event, all

of the CFPB’s structural defects impact the Director’s accountability, shielding

him from democratic control. Br. 48-50.3

The public, however, must be able to “ensure that those who wiel[d]” power

are “accountable to political force and the will of the people.” Freytag v. Comm’r,

501 U.S. 868, 884 (1991). The CFPA, which gives the Director vast powers while

exempting his decisions from every traditional political check, fails that fundamen-

tal standard.

II. The Order’s Sanctions Are Unlawful.

The CFPB does not dispute that, if this Court sets aside the Director’s liabil-

ity determinations, it must also set aside the sanctions that he imposed. In any

event, the CFPB’s defenses of the sanctions are meritless.

3 The CFPB is governed by stricter removal provisions than the Office of the

Comptroller of the Currency and the Federal Housing Finance Agency. Contra AARP Br. 24. Compare 12 U.S.C. § 5491(c) (removal only for “inefficiency, ne-glect of duty, or malfeasance in office”), with 12 U.S.C. § 2 (removal for any “rea-sons” “communicated” “to the Senate”), and 12 U.S.C. § 4512(b)(2) (removal “for cause”).


25

A. The Injunctive Provisions Exceed The CFPB’s Statutory Authority And Are Otherwise Invalid.

The injunctive relief ordered by the Director is not tied to the Notice of

Charges, and thus exceeds the CFPB’s statutory authority. The CFPB’s effort to

rehabilitate that relief does not discuss the Notice of Charges, let alone explain

how it relates to that Notice.

Instead, the CFPB claims it can ignore the Notice of Charges under 12

U.S.C. § 5565(a)(2)(G), which permits “limits on the activities or functions of the

person.” But the “special rules for cease-and-desist proceedings” provide a more

limited list of “orders authorized,” id. § 5563(b)(1) (capitalization omitted), permit-

ting only “an order to cease and desist from the violation or practice” “specified in

the notice of charges,” id. § 5563(b)(1)(D). The Director relied on Section 5563,

not Section 5565, as the source of his authority to order injunctive relief. Dec. 32

(JA32). The CFPB cannot now rely on a different and inapplicable basis of author-

ity to sustain that relief.

1. The CFPB does not meaningfully dispute that Provision I, which

vaguely prohibits Petitioners from “violating section 8,” Order at 1 (JA39), is un-

connected to the Notice of Charges, lacks reasonable detail, and does not provide

fair notice of the enjoined actions. The CFPB argues that, “‘[e]ven if it tracks stat-

utory language, a general injunction is not too vague if it relates the enjoined viola-

tions to the context of the case.’” Opp. 52 (quoting United States v. Philip Morris


26

USA Inc., 566 F.3d 1095, 1137 (D.C. Cir. 2009) (per curiam)). But Philip Morris

provides no support for Provision I.

Philip Morris upheld an injunction where the district court “specified the

matters about which Defendants are to avoid making false statements or commit-

ting racketeering acts.” 566 F.3d at 1137. But this Court also recognized that “in-

junctions [are] too vague when they enjoin all violations of a statute in the abstract

without any further specification.” Ibid. That is precisely the case here.

The CFPB notes that the relief applies only “‘in connection with the referral

of any borrower to a provider of mortgage insurance,’” Opp. 52 (citation omitted),

rather than any “real estate settlement service,” 12 U.S.C. § 2607(a). But the fact

that the injunction applies only to one type of settlement service does not make

Provision I any more specific within that realm. Nor does it matter that Section 8

“contains two prohibitions,” and “[t]here is no other conduct prohibited by section

8.” Opp. 52-53. An injunction must “specif[y]” in “reasonable detail,” Fed. R.

Civ. P. 65(d)(1), and in “fair and precisely drawn” terms what it “actually prohib-

its,” Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers, Local

No. 70, 415 U.S. 423, 444 (1974). It is no answer that RESPA prohibits some acts

but not others, or that the Order might have covered an even wider swath of con-

duct.


27

2. The CFPB admits that Provision III prohibits referrals that are unre-

lated to mortgage reinsurance, but claims that Petitioners should “‘expect some

fencing in.’” Opp. 53-54 (citation omitted). But “fencing in” Petitioners to an area

not connected to the Notice of Charges exceeds the agency’s authority, and that ar-

gument just confirms Provision III’s invalidity.

The CFPB has no real answer to Petitioners’ argument that the critical term

“triggered” is undefined. The CFPB flippantly asserts the Petitioners “should have

no trouble figuring out what ‘triggered’ means,” Opp. 54, but does not point to any

portion of the Decision or Order to illuminate what that meaning might be. Rather,

the CFPB offers a new definition on appeal, suggesting that “triggered” means

“caused.” Ibid. Counsel cannot put words in the Director’s mouth.

3. The CFPB does not deny that Provision II covers reinsurance agree-

ments outside the scope of the Notice of Charges (and indeed RESPA itself) be-

cause the Provision is not limited to mortgage reinsurance. It reasons, instead, that

the Director “‘is not limited to prohibiting the illegal practice in the precise form’”

at issue. Opp. 53 (citation omitted). Again, this just concedes that the Order is ul-

tra vires: Even if Provision II is not aimed at the “precise form” of the conduct de-

scribed in the Notice, it must at least be aimed at the same “violation or practice”

“specified” there. 12 U.S.C. § 5563(b)(1)(D).


28

4. The CFPB similarly acknowledges that Provision IV, which covers

10,700 current and former employees and their receipt of anything of value for a

period of 22 years, is unlawfully overbroad by characterizing it as “appropriate

fencing-in relief.” Opp. 54. Moreover, while the agency believes that Provision

IV “will permit the Bureau to detect any future violations PHH may commit,” id.

at 55, that says nothing about whether the injunction complies with applicable law,

let alone whether a narrower version could achieve the same result. Although the

CFPB tries to deny the “massive” burden imposed by Provision IV, ibid., the scope

of the requirement speaks for itself.

B. The Disgorgement Order Exceeds The CFPB’s Statutory Authority And Is Otherwise Invalid.

The CFPB does not deny that, of the $109 million in disgorgement ordered

by the Director, approximately $102.6 million was from reinsurance business for

book years that were not at issue before the ALJ. Instead, the CFPB simply identi-

fies the source of the problem: “[The ALJ] mistakenly believed that section

8(c)(2) provided an exemption for PHH’s violations of section 8(a),” and “PHH

violated section 8(a) every time it accepted a kickback payment.” Opp. 49. Those

premises are legally incorrect, and, regardless, identifying the reasons for the prob-

lem does not fix it. There can be no real dispute that the overwhelming bulk of the

disgorgement award cannot be sustained.


29

1. Disgorgement is categorically unavailable because RESPA expressly

addresses the penalties that violators face, and disgorgement is not among them.

See 12 U.S.C. § 2607(d). Although the CFPB generally may seek disgorgement in

an administrative action brought pursuant to the CFPA, the administrative proceed-

ing here is governed by the specific provisions of RESPA, including Section 8(d).

The CFPB says that Petitioners claim that “section 16 of RESPA, 12 U.S.C.

§ 2614, should limit the Bureau’s enforcement authority because that provision is

more specific than the provisions of Dodd-Frank,” and then rebuts that claim on

the basis that “section 16 does not address administrative enforcement proceed-

ings.” Opp. 48 n.38. This is a straw man. Petitioners never mentioned Section 16

in arguing that disgorgement is unavailable. Br. 57-58. The more specific statute

that governs here is 12 U.S.C. § 2607(d), which does not include disgorgement in

the list of sanctions available for RESPA violations and would be nullified if the

more general statute, 12 U.S.C. § 5565(a)(2)(D), were applied to permit disgorge-

ment here.

At a minimum, the CFPB cannot contend that it can obtain disgorgement in

this administrative proceeding for RESPA violations that occurred before July 21,

2011. Br. 58. The CFPB states that HUD had “authority to obtain [such] dis-

gorgement,” and that “the Bureau may do so as well.” Opp. 48. But that is incor-

rect. The Director relied on the proposition that, when an agency has been author-


30

ized to seek injunctive relief, “a court may award the full range of equitable relief,

including disgorgement.” Dec. 12 (JA12) (citing FTC v. Bronson Partners, LLC,

654 F.3d 359 (2d Cir. 2011)) (emphasis added). That is true because a disgorge-

ment order “‘may be considered an equitable adjunct to an injunction decree,’” and

thus falls within “‘the equitable jurisdiction of the court.’” Bronson Partners, 654

F.3d at 365-66 (emphasis added) (citation omitted). Unlike courts, agencies have

no inherent equitable authority. Br. 57. Accordingly, HUD was limited to—and

the CFPB inherited only—the authority “to enjoin violations” of Section 8. 12

U.S.C. § 2607(d)(4) (emphasis added).

2. Even if disgorgement were otherwise proper, the amount should be

reduced to avoid “punitiv[e]” disgorgement of anything other than “ill-gotten

gains.” SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989).

The CFPB agrees that the Order requires Petitioners to “pay [certain]

amounts twice.” Opp. 51. It nonetheless maintains that double payments are ac-

ceptable because Petitioners are “wrongdoer[s].” Ibid. Although untrue, this es-

sentially concedes that the disgorgement is punitive. And it does nothing to sal-

vage this portion of the Order: “[D]uplicati[ve]” disgorgements are necessarily

“unreasonable and excessive.” Hateley v. SEC, 8 F.3d 653, 656 (9th Cir. 1993).

Moreover, the Director erred in calculating disgorgement based on the total

premiums received, without subtracting reinsurance claims and commutation pay-


31

ments. Br. 59-60. SEC v. Whittemore requires disgorgement to be based on “prof-

its,” not gross receipts. 659 F.3d 1, 7 (D.C. Cir. 2011). The CFPB, however, again

points to Bronson Partners, where the Second Circuit held that disgorgement need

not be reduced by the costs associated with producing fraudulent diet products.

See Opp. 50. Unlike in Bronson Partners, Petitioners provided real services that

had real value. Similarly unavailing is the CFPB’s reliance on SEC v. Banner

Fund International: Paying reinsurance claims and commutation payments is

readily distinguishable from “a defendant … spend[ing] all the proceeds of his

fraudulent scheme.” 211 F.3d 602, 618 (D.C. Cir. 2000).

IV. The Decision And Order Should Be Vacated.

In light of these grave and numerous legal errors, the Decision and Order,

which this Court previously stayed, should now be vacated. The CFPB’s sugges-

tion that vacatur does not apply to adjudications, Opp. 61 n.50, is meritless. See,

e.g., Gen. Elec., 53 F.3d at 1334 (vacating finding of liability in EPA enforcement

proceeding).

CONCLUSION

For these reasons, the Decision and Order should be vacated.


32

Dated: December 11, 2015 Mitchel H. Kider David M. Souders Sandra B. Vipond Michael S. Trabon WEINER BRODSKY KIDER PC 1300 19th Street, N.W., Fifth Floor Washington, D.C. 20036 (202) 628-2000

Thomas M. Hefferon William M. Jay GOODWIN PROCTER LLP 901 New York Avenue, N.W. Washington, D.C. 20001 (202) 346-4000

Respectfully submitted, /s/ Theodore B. Olson Theodore B. Olson Counsel of Record Helgi C. Walker Scott P. Martin GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 955-8500

Counsel for Petitioners


CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS,

AND TYPE STYLE REQUIREMENTS

1. This brief complies with the type-volume requirement of Federal Rule

of Appellate Procedure 32(a)(7)(B)(i) because this brief contains 7000 words, as

determined by the word-count function of Microsoft Word, excluding the parts of

the brief exempted by Federal Rule of Appellate Procedure 32(a)(7)(B)(iii); and

2. This brief complies with the typeface requirements of Federal Rule of

Appellate Procedure 32(a)(5) and the type-style requirements of Federal Rule of

Appellate Procedure 32(a)(6) because this brief has been prepared in a proportion-

ally spaced typeface using Microsoft Word 2010 in 14-point Times New

Roman font.

/s/ Theodore B. Olson

Theodore B. Olson GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 955-8500


CERTIFICATE OF SERVICE

I hereby certify that, on December 11, 2015, an electronic copy of the fore-

going Brief for Petitioners was filed with the Clerk of the Court for the United

States Court of Appeals for the District of Columbia Circuit using the Court’s

CM/ECF system and was served electronically by the Notice of Docket Activity

upon the following counsel for respondent Consumer Financial Protection Bureau,

who is a registered CM/ECF user:

Larry DeMille-Wagman Enforcement Attorney CONSUMER FINANCIAL PROTECTION BUREAU 1700 G Street, N.W. Washington, D.C. 20552

/s/ Theodore B. Olson Theodore B. Olson GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 955-8500


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